The dollar index rose 0.21% today, supported by a 2% jump in WTI crude that lifted inflation expectations and heightened the prospect of tighter Federal Reserve policy. Equity market weakness also boosted demand for the greenback as a liquid asset.
The September Dallas Fed manufacturing survey fell to 9.8, a decline of 1.8 points that was less severe than the 7.8‑point drop anticipated by analysts.
Markets now price a 68% probability of a 25‑basis‑point Fed rate hike at the next FOMC meeting on October 27‑28.
The euro weakened 0.23% against the dollar, reflecting the dollar’s strength and the impact of higher oil prices on the import‑dependent Eurozone. A rise in the German Bund yield to a 17‑year high of 3.65% limited the euro’s loss by improving the region’s interest‑rate differentials. ECB President Christine Lagarde’s remarks struck a dovish tone, noting that rising long‑term rates would slow growth and reduce pass‑through more than previously projected, which weighed on the euro.
Investors are pricing a 37% chance of a 25‑bp ECB rate increase at the central bank’s policy meeting on October 29.
The yen advanced to a one‑week high against the dollar, falling 0.06% as comments from Japan’s top currency official hinted at possible coordinated intervention with the United States to curb yen weakness. A sharp rise in Japan’s August producer service prices reinforced hawkish sentiment for the BOJ and supported the yen. However, higher crude oil prices and rising U.S. Treasury yields offset some of the gains, given Japan’s heavy reliance on energy imports.
Reuters reported that Japan’s chief currency policymaker, Atsushi Mimura, said the prime minister, finance minister and the U.S. have sent a “very clear” message about yen depreciation, fueling speculation of another joint intervention to stabilize the currency.
Markets now assign a 41% probability to a 25‑bp BOJ rate hike at its next policy meeting on October 30.
December COMEX gold fell $148.80, or 3.44%, to a 1.75‑month low, while December silver dropped $3.046, or 4.70%. The decline was driven by a stronger dollar, higher oil‑driven inflation expectations that raised the odds of further central‑bank tightening, and rising global bond yields that eroded precious‑metal appeal.
Nonetheless, fund flows remain supportive. Holdings in gold ETFs reached a 6.75‑month high, and silver ETF positions hit a six‑month peak last Tuesday.
Central banks continue to bolster gold demand. China’s People’s Bank of China added 650,000 troy ounces to its reserves in August, bringing total holdings to 76.73 million ounces—the largest monthly increase in three years and the twenty‑second consecutive month of growth.
